Understanding Term and Permanent Life Insurance
Life insurance is an agreement between an insurer and an insurance holder or annuity recipient, in which the insurer promises to pay out a specified amount of money to a specified beneficiary upon the loss of an insured individual. Depending on the contract, beneficiaries can be anyone, including an estate (property left by a deceased insured), beneficiaries of a spouse, dependent children, or even relatives. These can also include organizations such as churches or fraternal or not-for-profit corporations. In some cases, life insurance can also be based on contract or group plans.
Because life insurance is so highly regulated, it is important to choose a provider wisely. In the United States, this can be done by learning about the different types of life insurance available. Although there are some well-established players in the industry, there are also many new players that have arisen. Below is an introduction to some of the most common types of life insurances.
Most life insurance companies offer policies in more than one type. These can include term life insurance policies and universal life insurance policies. Term life insurance policies, as the name implies, only cover the policyholder for a stated period of time. If the insured dies during that time, his/her dependents will be paid the lump sum amount from the proceeds of the life insurance policy, less any outstanding premiums. Universal life insurance policies are the same as term life insurance policies, except that the premium and death benefit remains constant throughout the policy’s lifetime.
As with all life insurance policies, there are a number of important factors that should be considered when choosing a provider. To begin with, it is imperative that the company have a large enough death benefit. Premiums vary from company to company, so finding one with a moderate premium and a decent death benefit is more important than finding one with the lowest premiums. Another factor that should be considered is the experience of the company’s underwriters. An underwriter is responsible for evaluating risk and writing a policy with the best possible coverage for the least possible premium payment. Read more about Llama Life here.
Another option to consider is a whole life policy. As its name implies, a whole life policy provides coverage for the insured for the entire lifetime of the policy. The death benefit in particular is relatively small, but this should not discourage an individual from purchasing such a policy. In addition, as the insured pays no premiums during the life of the policy, the benefits are completely tax-free. This is a significant financial plan advantage for people with high annual salaries.
There are two basic kinds of life insurance policies, named and term. A named life insurance policy is taken out at the time of death and covers the beneficiary. Beneficiaries can be family or friends. In terms of tax benefits, both the named and the term forms have significant advantages.
The other type of permanent life insurance coverage is variable. Variable policies provide more flexibility than the named variety. Basically, a variable policy is one that gives policyholders the right to determine the amount of premium to be paid by them and also determine the amount of the death benefit over the policy’s lifetime. In short, policyholders can adjust the premium amount and the death benefit until they meet the required income and expenses in their retirement. This flexibility is very attractive to older people who may need to adjust their lifestyles quite often.
Generally speaking, term life insurance provides coverage only for a fixed period of time. It is basically a loan with variable premium payments. Once the term of the policy expires, the policyholder will be left with a great deal of cash. However, term life insurance does offer significant advantages to those who need it. It can help protect a family’s financial interests in certain situations like paying off a mortgage or buying a house in the near future.
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